Thursday, June 14, 2012

Don't believe the gloom, the Australian government is hugely supportive of startups

There have been numerous articles and blog posts recently lamenting the lack of government support for Australian startups. In our view, nothing could be further from the truth.

1. There is very little beauracracy involved in starting a business in Australia
To start a tech business in Australia all you need to do is:

2. Research and Development (R&D) Grant
The Australian government provides an amazing benefit to tech startups undertaking R&D work in the form of the R&D Grant, and the program was improved starting from the 2011/2012 financial year. Under the recent changes, we now receive a cheque from the government at the end of the year giving us back 45 cents in the dollar for all the R&D expenditure we've undertaken during the year! In 2010/2011 we received back $20,661.51 this year the figure will be significantly higher.

The cashback component applies to businesses making a loss, which most tech startups will be. The benefit comes in the form of tax credits for business making a profit. To receive the 45 cents in the dollar back you forgo the future tax losses on your R&D spend, equivalent to 30 cents in the dollar but you're getting more than that back and more importantly you're receiving it back sooner and as cash, exactly what a startup needs to help get its business off the ground.

The R&D grant is designed to encourage investment by Australian businesses in R&D, and it works. Knowing the we'll receive this money back at the end of the year allows us to invest more in R&D than we would otherwise and has allowed us the luxury of hiring more software engineers to experiment with new projects than we could afford to otherwise.

3. Export Marketing Development Grant (EMDG)
Small to medium Australian businesses who export product overseas are able to claim the EMDG and receive 50 cents in the dollar back on their overseas marketing spend. 2/3 of Shoes of Prey's sales are to overseas customers, and we invest in AdWords, Facebook, PR and other marketing activities to promote our product to overseas consumers. Last year we received $38,825.40 back from the government as part of this grant and this year it will be significantly higher.

The EMDG is designed to encourage and assist Australian businesses to export their products and for us it works, we're able to make export marketing investments we would otherwise not be able to afford.

4. Commercialisation Australia
Commercialisation Australia is a program established by AusIndustry to assist early stage businesses develop and commercialise their products. 4 different programs are offered:

  • Skills and Knowledge - Up to $50,000 to access specialist advice and services
  • Experienced Executives - Up to $350,000 to engage a CEO or other senior executive
  • Proof of Concept - $50,000 to $250,000 to prove the commercial viability of new IP
  • Early Stage Commercialisation - $50,000 to $2 million to take a new product, service or process to market

Commercialisation Australia funds a percentage of the money spent on each of these activities. For example, for the Early Stage Commercialisation Grant the program funds 50 cents in the dollar of the money the company spends on commercialisation activities.

Now that we've raised $3m we've applied for an Early Stage Commercialisation Grant to help us scale our operations and international distribution channels. We find out in late June whether we've been successful.

5. 66 Oxford St. Darlinghurst, Sydney
The Sydney City Council own a building at 66 Oxford St. that is apparently earmarked for renovation or demolition, so finding a long term tenant to lease the space wasn't going to be easy. Rather than leaving the building vacant, they opened it up for creative and technology businesses to use it as office space, for free! Numerous tech startups have based themselves out of there and the project has gone so well the council is looking into opening 2 more spaces on William St. Darlinghurst for the same purpose.

6. Support for Venture Capital
The Australian Government is aware that venture capital for startups in Australia lags behind other countries, particularly the United States. A number of government programs are designed to help encourage and grow the ventures capital industry in Australia. One of the best is the Innovation Investment Fund (IIF) where a venture capital firm can have the funds they raised matched dollar for dollar by the government. One of our investors, Southern Cross Venture Partners has an IIF backed fund (though this isn't the fund that invested in Shoes of Prey).

With these programs on offer a tech startup can quickly, cheaply and easily set itself up, gain free office space in inner city Sydney, raise capital from an IIF backed investment fund then have 45% of their R&D work funded, 50% of their overseas marketing costs funded, and have other parts of their business, like early stage commercialisation activities 50% funded by the government as well.

That's an incredible amount of support for Australian startups. What do you think?

Image credit.

6 comments:

  1. Great read Michael! Good to know that Australia isn't as hostile to start-ups as some would make it seem.
    With our prodigious talents and resources it's only a matter of time until the next "big thing" is coming out of Australia.

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  2. Great post. Shame that you won't get as many readers as the A.M. beat up - you'd have to have no business experience, do no research, get an all expenses paid trip to the US and then spend 5000 words complaining about everything for that.

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  3. Thanks Mike, though I'm afraid it reveals something about the Australian character and attitude. "Why doesn't the government do something?" is one of the most appalling sentiments that's developed in our great country. In truth, it's not about government as you suggest there's already plenty of help out there from them. What's really needed is a change in attitude from VCs, educational institutions and the Australian people.

    VCs could learn a thing or two from their American counterparts and start taking bigger risks, earlier on. Money is there for late stage companies from top tier VCs and government grants but a wide gap exists between there and initial seed funding from programs such as Startmate. As it stands currently, if you're not profitable in the first three months, you're cooked. The only real alternative is to seek overseas funding.

    Tertiary education needs an overhaul. We must stop solely grooming our students to go work for multinationals with their promise of big, secure salaries. Stanford is doing a great job with it's entrepreneurial programs of showing students that there are other (and potentially more rewarding) alternatives.

    Perhaps most difficult of all, is to affect a cultural shift for our people from an employee mindset to an entrepreneurial mindset. We as a people need to become more comfortable and celebrate the pioneering spirit. Sending people off from the workforce or from school to pursue their dream of starting a business should become commonplace.

    Lastly, but most importantly is for aspiring entrepreneurs to stop whining and make it happen. Don't wait for handouts, special treatment or the planets to align. Just f*&$ing do it, and don't take no for an answer.

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  4. Good post Michael. I agree with the above and I also think Austrade do an excellent job - we've used them to find overseas distributors, find overseas service providers, and also to assess viability of overseas markets. All high quality service and all for free or nominal rates.

    The other thing is that in my experience Australian business people have a wonderfully supportive attitude to start ups. From little guys up to big guys most more experienced people are happy to share information and talk with start ups about anything at all. This is often worth it's weight in gold.

    In my experience even those start ups who don't fit into an area or program of government assistance needn't look far for a bit of help, support, or advice.

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  5. Great work Michael. I agree that there's been too much doom and gloom over this. The NSW Government's Department of Trade and Investment has also been very supportive of start-ups in NSW. At goCatch we were very thankful to receive funding under the department's mobile concierge program. There's always more that can be done (I think we can learn a lot from Singapore in those regards) but generally I think federal and state governments should be congratulated for taking steps in the right direct.

    Good to see your presentation at Google Sudo BTW!

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  6. Hi Michael,
    Thanks for the informative post. We are interested in applying for the EMDG grant and I was wondering whether you used a consultant to assist in preparing your application? If so, can you provide a recommendation.
    Kind regards,
    Peter

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